Global Market Report: Palm oil prices and sustainability

Present in the shampoo we use and the packaged food we buy, palm oil is the most widely produced edible oil. But palm oil development in Indonesia and Malaysia—the top two producing countries—has led to significant forest loss over the last 30 years. The deforestation and land-use changes that often occur during palm oil cultivation are some of the leading causes of climate change—yet the sector is increasingly vulnerable to its impacts.

However, the production of palm oil is also very efficient: oil palms produce significantly more oil per hectare of land than any other vegetable oil crop, with yields over 10 times higher than soybean and sunflower. The sector also represents a source of livelihood for over 7 million smallholder farmers worldwide. Palm oil therefore plays an instrumental role in maintaining global food security and alleviating poverty.

Voluntary sustainability standards (VSSs) such as the Roundtable on Sustainable Palm Oil (RSPO), Rainforest Alliance, Organic, and the International Sustainability and Carbon Certification first emerged in the sector 30 years ago. Today, roughly 17% of palm oil produced complies with one of these VSSs. Many include requirements for building climate resilience and reducing deforestation in the sector. They also encourage oil palm farmers to implement better practices that can help to increase their yields and crop incomes—for example, by maintaining soil health and reducing production costs by using fertilizer more effectively.

However, very few oil palm farmers who comply with VSSs receive minimum prices or premiums for their produce. This is exacerbated by the fact that demand for VSS-compliant palm oil remains low, with a large proportion of RSPO-certified crude palm oil being sold as conventional.

With rising production costs, limited negotiation power, and a lack of access to finance and quality inputs to contend with, many oil palm farmers in developing regions are left struggling to earn a living. This report provides a series of recommendations for governments, private sector actors, and standard-setting bodies to ensure that palm oil producers receive better incomes and are incentivized to adopt more sustainable practices.